Background and History of Citibanks International Business - Assignment Example

? Citibank Table of Contents Background and history of the Citibank’s international business 3 Recent development of the Citibank’s international business 5 Three issues of the Citibank’s internationalization process 7 Strategy for the future of Citibank 10 Reference List 14 Background and history of the Citibank’s international business One of the leading global banks, Citibank handles 200 million customer accounts approximately. Its business operations spans across 160 countries and jurisdictions. Citibank provides its customers (individuals, corporations and governments) with a variety of financial products and services which includes consumer banking, corporate and investment banking, credit , transaction services, securities brokerage and wealth management (Citigroup, 2013a). Citigroup operates in six major regions in the world which are North America, Latin America, Asia, Europe, Middle East and Africa. An institution connecting millions of people from more than 1000 cities covering 160 countries, they represent themselves as a global bank. After achieving tremendous success domestically since its inception in the year 1812, they expanded globally with a sole purpose of serving their clients and shareholders effectively (Citigroup, 2013b). Citibank’s main objective of internationalization is to enter new markets and structure a banking relationship with a dedicated team of country specific officials who have thorough understanding of foreign markets and have a wealth of experience working with Citibank divisions across the globe. One of the primary global solution services of Citibank includes quick and easy opening of account in any of the 39 currencies from a single Citibank branch. Thus it spares the need for opening accounts country by country; currency by currency. They also offer foreign exchange services to international clients thereby providing personalized one-to-one guidance from a foreign exchange specialist. They also offer 24 hours foreign exchange trading in 135 different currencies. In addition to that, Citibank also provides World Link service by means of which their international clients can make payments such as wires, automatic clearing houses or checks in any of these 135 currencies. Their multicurrency payment system offers a one-stop solution for their international clients to make payments using their preferred currency without opening accounts in different currency which they want to trade in (Citigroup, 2013c). The Citibank global business solution division helps its clients who are involved in internal business (importing materials or expanding overseas) by providing paperwork-oriented services thereby mitigating the risk. CitiBusiness trade services and manage trade transactions on behalf of their international clients thereby helping them to minimize their risk when dealing with counterparties from different countries (Citigroup, 2013d). As far as the Citibank’s international business operations in the Asia pacific region is concerned, its history dates back to 1902. They provide more services in the market, with a large base of clients, compared to any other financial institutions in this region through its institutional clients group and global consumer banking business. They employ more than 60,000 officials across 18 countries in this region. Citibank has a rich history of innovation and customer service in this region and has been as the region’s leading retail bank (Citibank, 2013e). As far as Europe, the Middle East and Africa is concerned, Citibank operates in 116 countries. However, it maintains physical presence only in 55 of them. Operating in this region has proven to be of great benefits for the organization, primarily because this region includes a thick combination of both developed and emerging markets. The main rationale for preferring Citibank over any other financial institutions in this region, as explained by the clients, is because of the bank’s global footprint, market position, in-country relationships and availability of wide range of products and services. In addition to that, they favor Citibank services because they provide unparalleled control, access, maintenance, convenience, security and rewards (Citibank, 2013f). The history of Citibank’s operations in the Latin America dates back to 1904, when it started its operations in Panama through the international banking corporation. The first international branch of Citibank was opened in Buenos Aires, Argentina in the year 1914 which also marked the opening of the first foreign established branch of a nationally chartered U.S. bank. Thereafter, another international branch was opened in Rio de Janeiro, Brazil. Citibank expanded furthermore in the Latin American financial market by integrating with Banamex, which has served as Mexico’s leading financial institution since 1884. Citibank has attained a dominant position in the financial services industry of Latin American region since 1904, with operations spanning over 24 countries. Citibank’s main operations in Latin America include institutional clients group which provides financial consultancies to companies via Citi corporate and investment banking services, Citi markets and Citi transaction services. It also provides regional consumer banking services which involves retail banking, Citi branded cards, Citi mortgage, commercial banking and retail services. In addition to that, this division is responsible for handling 31 million retail bank clients and 13 million credit card accounts approximately, thereby managing $45 billion and $27 billion in average deposits and average loans respectively (Citibank, 2013g). Moreover, Citibank also generates revenues internationally through its wealth management services whose primary activity is to provide wealth management solutions to high net worth individuals and successful families all over the world. The North American Citibank’s internal business operations are carried out in Canada. It has been over 50 years that Citibank has maintained its presence in the country. It offers wide range of products and services thereby providing its clients with financial solutions in corporate and investment banking, consumer finance, credit cards, consumer finance, private banking and transactional services. Its operations in Canada is carried out though different divisions which are Citi cards , Citi financial, Citigroup global markets, Citigroup fund services and Citi private bank business (Citigroup, 2013h). Fig 1: Citibank’s global presence (Source: Citigroup, 2013a) Recent development of the Citibank’s international business The strong global connection between financial market, the financial system, and the real economy has been demonstrated by the recent financial crisis (Ueda, 2012). Banks and other financial institutions are expanding globally in order to reach out to a wider customer base with a sole objective of generating higher revenues. The steep competition in the international business arena has influenced banks and other financial intermediaries to merge with companies based in foreign countries in order to gain market advantage. As has been seen in case of Citibank, there integration with Banamex, the leading Mexican bank, was a step taken by Citibank’s management to gain competitive advantage in the Latin American market. Since then, Citibank has been the leading bank operating in over 24 countries in the Latin American region. Citibank has been of great help to its Asia Pacific clients raising more than $150 billion from the international capital markets and advised on M&A deals worth more than $50 billion in 2011. Being the major contributor in global flows and transactions, Citi Transaction Services, has one of the industry's largest proprietary networks which spans nearly over 100 countries constituting of 10 major regional processing centers. Citi Private Bank is known to be the leading wealth manager in the Asia Pacific region that provides custom-built services to high-net-worth individuals and families, constituting of one third of Asia’s billionaires. Being the largest wealth manager in the Asia Pacific region, Citibank manages assets worth $200 billion. Citibank recent development in the Asia pacific region includes the introduction of customer touch points with nearly 700 retail branches and more than 2,500 automated teller machines. It is also the top card-issuer in the Asia Pacific, handling more than 16 million card accounts. It serves more than 600,000 of the region's affluent consumers through the Citigold and Citigold private client division. Considering the example of India which has a growth oriented market, it has experienced unrivalled services provided by Citibank. Citibank has a substantial presence in India with 42 Citibank branches across 30 cities and more than 700 ATMs. With capital investment of more than US$4 billion, Citibank is the largest foreign direct investor in the Indian financial services sector. It offers a variety of financial products and services to its consumers including securities brokerage and wealth management, consumer banking and credit, corporate and investment banking (Citibank, 2013e). Another recent development of Citibank in the Indian financial services industry was when it saw a loan growth of 7.4 per cent in the third quarter ending September 30 in the current financial year (Business Standard, 2013). The loan growth amounted to $7.1 billion. The Indian banking industry witnessed a tremendous growth in credit (18%) in the first six months ending September, primarily because of an increase in retail lending. In the third quarter ending in September, Citigroup net income increased to $3.23 billion from $468 million in the same period one year ago. In addition to that, Citigroup's loan losses allowance amounted to $20.6 billion in the third quarter (Business Standard, 2013). Meanwhile, asset quality of Citigroup improved because of a surge in total non-accrual assets (decreased to $9.8 billion, which is a 23 per cent reduction compared to what it was in the third quarter of 2012) (Business Standard, 2013). Citigroup’s corporate non-accrual loans fell by 10 % to $2.2 billion, whereas consumer non-accrual loans reduced by 26 per cent to $7.2 billion (Business Standard, 2013). Citibank sees remarkable growth prospects for their business within the emerging markets (The Middle East and Africa), and their primary objective is to help their international clients to bring upon improvement in their operations in these countries at every stage, whether they are entry level business entering a new market or expanding their operations in order to consolidate a long-term presence. Among the 90 percent FTSE 100 companies that Citibank manages, 50 percent of them consider Citibank to be their leading consultant/advisor. The Citi global subsidiaries group addresses the local and regional needs of Citi's core multi-national clients from around the world. This service provided by them has helped Citibank to develop relationships with more than 8000 subsidiaries, in the recent past, which constitutes of 1500 companies in Europe, the Middle East and Africa. In this region, Citibank maintains close to 267 bank branches, more than 1000 ATMs and 6 investment centers (Citigroup, 2013f). Citibank Latin America not only emphasizes on enhancing the environmental and social sustainability of their operations, but also those of their clients, partners, and stakeholders. Alongside providing support to the development and implementation of a portfolio of nearly 70 strategic social investment projects across 22 markets each year, Citibank team focuses on the design and management of domestic path programs. The program activity involves leading the implementation of the equator principles which when followed alongside a certain initiatives that promotes financial inclusion as well as generation of prospective income-generating opportunities will help companies at the base of Latin America's socio-economic pyramid. Over the recent past, Citibank’s efforts reached more than 200,000 beneficiaries through the implementation of these regional programs as well as by executing country specific initiatives. This achievement boosted their efforts to promote socio-economic development in communities across the region (Citigroup, 2013g). Three issues of the Citibank’s internationalization process A rapid growth has been witnessed in the number of companies undergoing internationalization process (Zorlu and Hac?oglu, 2012). With this steep competition, management of different companies is coming up with efficient and innovative strategies in order to stay ahead of their competitors. These innovations are increasing the level of intricacies associated with the internationalization process thereby increasing the complexity of internationalization process. According to Selmier and Oh (2012), starting from the manufacturing of a product according to specifications, investing in order to produce, transport, and distribute that product, doing multi channel marketing in order to promote that product and managing the enterprise, all business functions have certain degree of complexity associated with it over the course of the international business process. These complexities also point out certain barriers or issues faced by the companies over the internationalization process. The first of them is the barrier of language in the foreign country where the company is trying to expand its operations. This complexity increases with the increase in the level of language sophistication. In today’s world, the international business subsists depending upon the media of languages: languages which are spoken, printed, and digitized. The whole internationalization process which also includes foreign direct investment (FDI) flows is carried out on the basis of verbal and written communication and contracting. Requirements for resources must be presented appropriately and counterparties must have the ability to negotiate an acceptable transaction agreement. These negotiations involve rigorous conversations and people responsible for this must have good grasp over the regional language. Economic exchange has undergone a rapid development. This requires company counterparties to use sophisticated methods of expression in order to specify price, quality quantity, delivery mode, payment terms, and post-transaction relations. Linguistic competency is a core requirement in order to maintain a smooth operational process. Lengthening of supply chain networks, ease in product substitution and making prospective investment decisions in foreign countries also increases the demand for linguistic competencies. In order to be a world class company, in terms of products and services, world-class communication skills are required. “Time spent on communication equals money, and time ill-spent increases transactions costs” (Selmier and Oh, 2012, p. 190). This is one of the barriers that Citibank has faced while expanding globally. Cultural and language barriers are somehow inter-related in international business but yet they are two different issues affecting the performance of companies on foreign soil. Language serves as the vehicle for culture and cultural values which are reflected in the language spoken. Being culturally related increases familiarity between negotiating partners, thereby increasing trust between them (Luo and Shenkar, 2011). However, more often than not companies do face cultural barriers while negotiating with their clients, suppliers, business partners so on and so forth when they enter a foreign market. The last two decades have witnessed a tremendous increase in the pace of globalization. It started in the year 1989 when the Soviet bloc collapsed. Apart from this incident, the creation of a single Europe, implementation of the North American Free Trade Agreement (NAFTA), and establishment of the World Trade Organization (WTO) were also indications of rapid globalization. This consistent increase global activity has prompted firms all around the world to collaborate with partners in order to enter new markets for delivering products and services, for acquiring new sources of raw materials, parts and components, cost-effective locations for manufacturing and assembly operations. Over the years it has been noticed that some of these foreign venture strategy does succeed, but many do not. The main reason for this failure, as explained by many authors, is the inability of organizations and their managers to adjust to the demands of the international business environment (Johnson, Lenartowicz and Apud, 2006). Hill (2001) stated that the lack of ability of headquarters managers to accept the cultural challenges of doing business overseas has deteriorated the performance of global firms significantly. This inability can be elaborately explained as a poor understanding of the local economic, political, and socio cultural environments which has proven to be a barrier in the internationalization process. Researchers and authors worldwide have come to a common conclusion that lack of cross cultural competency is the fundamental reason of international business expansion failures. Cross cultural incompetency, as described by Johnson, Lenartowicz and Apud (2006), is the inability of individuals or organizations to function effectively under the influence of foreign culture. The author also stressed that, the reason for the failure of firms undergoing internationalization process was the inability of managers to perceive the regional culture of a subsidiary which leads to ineffective interaction with their counterparts overseas. Financial institutions more than often are successful in their domestic markets. However, they struggle and sometimes fail in the international business arena when cultural differences are at stake. This is primarily because of their low level of cultural competency. Despite the level of research done in order to explain the importance of cross cultural competency in international business, organizations still does not appear to be taking effective steps to prepare managers for the international business environment. Lack of cultural specific knowledge as well as cultural specific training is an issue which is deteriorating the performance of Citibank within its internationalization process. Political factor is another issue which has proven to be a barrier to international business. According to Julian and Ahmed (2012), government policy as a barrier to internationalization has been witnessed frequently over the last two decades. Governments have refrained from providing assistance to foreign organizations in overcoming the different barriers to internationalization. In addition to that, the lack of a tax incentive provided by the host country government to foreign companies engaging in international business is also another factor which has affected the performance of foreign companies over the last few years. Strict regulations such as imposing limitations to investment, as well as limitations on holding stake in foreign companies have also impacted the revenue stream of Citibank. As far as government assistance is concerned, Citibank requires their home government assistance in order to counter the barriers are created by foreign country governments. Research scholars have suggested that a firm’s internationalization process occurs in stages and each stage presents different problems to the management. Thus, globally-expanding organizations need assistance accordingly at different stages. Similar theory can be concluded in case of Citibank. Apart from that, in a foreign market, Citibank must build a reputation with the target market. However, this process is costly as well as lengthy. If proper subsidies are provided by the government then that would help companies break into foreign markets. Without this assistance it would be difficult for companies to enter into foreign markets, as foreign country governments are inclined towards protecting local industries. Citibank has faced this problem quite consistently while expanding its operations in the emerging markets. The theories highlighted above provide a firm idea that government policy can act or rather does act as a barrier to internationalization (Lages, 2000). Citibank is exposed to multiple risks while undergoing its internationalization process. This is particularly because at the initial stages, foreign practices are incompatible with domestic business. This incompatibility is originates from the difficulty to understand foreign business practices, confusing regulations and procedures regarding carrying their operations and investments. Therefore, these foreign business practices being difficult to understand due to confusing government regulations could act as a barrier to expansion. Moreover, research scholars have suggested that firms perceive international business expansions to be more risky than domestic ones, because ongoing expansions often entail new types of risks which incur high costs which normally would not occur in case of domestic operations (Julian and Ahmed, 2012). One of the international risk factor that has affected Citibank’s performance to a certain extent is the actions taken by host country government such as the enactment of legislature that limits the amount of investment as well as the amount of stake that they can have on a foreign company. Strategy for the future of Citibank According to Jeon, Olivero and Wu (2013), the impact of multinational banks on foreign economies has been a debatable topic. This is primarily because there has been an unprecedented increase in the concentration of foreign banks in developing and emerging economies in recent years. McCauley, McGuire and Peter (2010) and Jeon, Olivero and Wu (2011) argued that multinational banks that operate in foreign market under the global networks of multinational banking (subsidiaries and branches) have a significant contribution towards enhancing the efficiency, competitiveness, and stability of the banking systems and the financial industry as a whole in the host economies. On the contrary, authors across the world have also stressed the fact that foreign banks have also acted as a destabilizing force (Roubini and Mihm, 2010). According to Popov and Udell (2012) and De Haas and Horen (2012) multinational banks are short-term profit seeking speculators who enter foreign markets as home-based international lenders in order to transfer adverse shocks from the home country to various host countries. This has been noticed especially in situations when the banks’ home countries experience an economic crisis (Giannetti and Laeven, 2012a,b). In light of these speculations, the main strategy of Citibank should be to establish itself in the internal markets of foreign countries helping them to utilize the foreign market for both shifting risk between the headquarters and its subsidiaries, and do efficient reallocation of revenues across its subsidiaries. Proper utilization of the foreign market will provide the organization with prospective opportunities to use limited resources in an efficient way thereby allocating them evenly across the network of global subsidiaries in order to counter the financial market frictions and reduce the costs of external finance. Citibank must look to expand its operation furthermore in the countries which have not been ventured yet. They can merge with or acquire prospective companies based in the foreign market which would give them a clear understanding of the status of the financial services industry in that particular country. That would in turn help them to achieve competitive advantage. M&A activity will also help them realize the economies of scale and scope thereby ensuring a high revenue growth (Focarelli and Pozzolo, 2008). In addition to that, Citibank must also take effective steps for reducing the language barriers that are faced while entering foreign markets. They should employ officials who have advanced level knowledge about the regional language where the company is trying to expand. This will help them to provide a greater customer base and provide them with optimum quality products and services. Moreover, reducing the language barrier will also help Citibank to negotiate with host country organizations and government in order to reduce cross cultural and political barriers. According to Chung (2003), who focused on the international marketing literature, explained that culture not only sets the criteria for the everyday business behavior, but also formulates a general framework for motivation and attitude. If managers of Citibank are not culturally enriched they could face difficulties carrying the predominant business practices in the foreign market. In order to ensure that managers are culturally sensitive, Citibank should do an in-depth research of the cultures of the countries to be ventured. Thereafter culture specific knowledge and culture specific training should be provided to officials responsible for carrying out the initial activities involved in the internationalization process (Daniels, Radebaugh and Sullivan, 2004). One of the primary prerequisites for Citibank managers is to be globally adequate in their knowledge of foreign trends and cultures, perspectives, technologies and ideas to conduct business operations. In addition to that, they should be ready to cope up with culturally diverse people and be able to adapt to different cultures. They should know the ways of interacting with their colleagues from the host country. The three fundamental factors that are critical to being culturally competent are attitude, skills and knowledge (Hofstede, 2001). According to the author, Citibank officials who would be responsible for the organization’s internationalization process must possess a strong personal identity, knowledge regarding the beliefs and values of the culture that prevails in the country of their expansion. They should demonstrate cultural sensitivity towards the cultural process that exists in the host country. Citibank must ensure the fact that effective communication takes place in the language of the given cultural group. They should emphasize on maintaining active social relations within the cultural group as well as possessing the ability to negotiate with the institutional structures of the culture followed in the host country. Early (2002) and Early and Ang (2003) contradicts that these steps would alone would not ensure success for the company but the motivation among individuals to implement this knowledge will surely ensure success. Citibank managers should also take effective steps in order to mitigate the political factors that affect the performance of the company significantly. According to Chang et.al (2013, p. 213), “the extent to which business cycles are synchronized across countries has become an important criterion when considering whether to join a currency area.” Citibank decision makers should do a proper research of the political situations that prevail in the foreign economy and based on that they should be able to make proper decision regarding the prospect of a venture in that country. Once expansion is decided upon, they should be able to negotiate properly with the foreign government in order to provide them with assistance required to reduce the political barriers. In addition to that, they should follow the regulations properly as laid down by the foreign governments for reducing any chances of confusion and hence conflict. Reference List Business Standard, 2013. Citi India posts loan growth of 7.4% at $7.1 bn. [online] Available at: [Accessed 17 October 2013]. Chang, K., Kim, Y., Tomljanovich, M. and Ying, Y. H., 2013. 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